What is a Revocable Living Trust?

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A trust is a separate legal entity for holding and investing property. The most common type of trust is a revocable living trust. One or more persons (the “trustee”) holds property, usually real estate or investments, for the benefit of another or several other people (the “beneficiary”). The person who gives the property for the trust is known as the “grantor.” The trustee holds legal title or interest and is responsible for managing, investing, and distributing the assets or property of the trust. The beneficiary holds an equitable or beneficial interest.

WHAT ARE THE BENEFITS OF ESTABLISHING A TRUST?

Depending on your situation, there can be several advantages to establishing a trust. Most well known is the advantage of avoiding probate. That is, in a trust that terminates with the death of the grantor, any property in the trust prior to the grantor’s death passes immediately to the beneficiaries by the terms of the trust without requiring probate.

This can save time and money for the beneficiaries. Certain trusts can also result in tax

advantages both for the grantor and the beneficiary. Or they may be used to protect property from creditors or simply to provide for someone else to manage and invest property for the grantor and the named beneficiaries. Trusts are private documents and only those with a direct interest in the trust need know of trust assets and distribution. If well drafted, another advantage of trusts is their continuing effectiveness even if the grantor dies or becomes incapacitated (this is the primary reason I recommend Trusts for everyone).

WHAT KINDS OF TRUSTS ARE THERE?

There are several types of trusts, some of the more common of which are discussed below:

Revocable Living Trust

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Living Trust

A revocable living trust is a trust  created during the life of the grantor rather than through a will. With a revocable living trust, the grantor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. So, the grantor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death. The disadvantage of a revocable living trust is that there is no asset protection for the grantor.

Irrevocable Trust

An irrevocable trust is created during the life of the grantor, who thereafter may not change or amend the trust. Any property placed into the trust may only be distributed by the trustee as provided for in the trust instrument itself. For instance, the grantor can provide that he or she will receive income earned on the trust property. The irrevocable trust where the grantor retains the right to income only is a popular tool for asset protection planning.

Testamentary Trust

A testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the grantor is probated upon his or her death. Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to provide funds for minor children or to prevent the rapid spend down of inherited money. One study showed that regardless of how much a child inherited and regardless of their age, all of the inherited money was gone within 18 months.

HOW CAN I FIND OUT IF I SHOULD HAVE A TRUST?

I invite you to set up a free, no obligation consultation to discuss your options. I may be reached at 480-809-1014 or you may email me at richard@dworniklawaz.com.

 

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